Short Squeeze Hits Escape Velocity

The 'most shorted' names in the Russell 3000 are up a remarkable 1.4% today compared to 0.45% in the index itself. The short-squeeze off the NFP gap-down lows is impressive indeed. From the open last Friday, the 'most short' names are up 6.6% against the index up only 3.5% as the dash for trash continues in the face of increasingly dismal data. The last 2 times that the 'most short' index was this squeezed relative to the index was late-December (before the equity dip) and mid-Fed (before the equity dip). Just as we warned here and here, the inexorable flow of easy money means the dash-for-trash (as remarkably ridiculous as it seems - though as now know nothing is allowed to fail ever again) has been the winning trade; though as we note below, there is a limit to the 'squeezability' and we appear to be there in the short term.

The 'most short' names have been smashed higher in the last few days with Tuesday and today being more epic squeezes...

and the last two times the squeeze got this wide...

But it is remarkable that this rally has provided a 30% rally off the November lows among the most-shorted names - almost double the performance of the index itself...

Finally, for those who missed it the first time around in February (since when the basket has returned well over 10%), here again are the most shorted Russell 2000 stocks:

S&P ~1600 will be a key point, if you go in for watching the tape. Not only is it a nice round number, it also marks the line of resistance defined by the previous two market tops in 2000 and 2007.

I would guess it'll get hit, get eclipsed, fall back through, hit again, churn relatively heavily, and then move on, more likely down than up. I'm not going to bet on it though. There are better bets to be had.

The easier the money, the riskier the bets. Just talking to a friend of mine this morning about how neither of us has ever been attracted to gambling or casinos. As we both own small businesses we are forced to gamble everyday, and usually the payoffs are small but the risks are large. Our money is very precious to us as we have had to earn and accumilate it very slowly so there isn't much temptation to throw it down on the table in large chunks, especially in someone else's casino where we know the game is rigged against us. The only thing I can imagine is that either these people are gambling with easy money or someone else's money, to be willing to take these risks.

If a correction ever ocurrs, there are circuit breakers in place that will give people time to cool off so that when the markets reopen transactions will occur in an orderly fashion. Transactions will ocurr in an orderly fashion. Transactions will ocurr in an orderly fashion.

It isn't just the small ones. Big-cap tech names like AMZN, FB, LNKD getting bid in the same way, showing pretty tight correlation with the graph of the Russell most shorted. These companies don't need the Fed backstop to save a failing business model, they are self-sustaining for now (maybe not AMZN), so the Fed backstop is simply to support triple-digit PEs? The farce marches on ...

This all smells like a top to me and keep in mind (on a closing basis we have not escaped above the line that projects across the tops of the previous decades YET). One possible down side target using XOM's chart suggests we could see 108 or 1080ish in a hurry if XOM breaks down with SPY snapping back to it's long term correlation to XOM.. big if I know.

At what point do we just turn the NYSE off and simply allow all holders of stock a 0.5% gain every day. Would eliminate all the noise and tying to Fed actions. Just give everyone a nice gain every day perhaps based on a couple Lotto balls with numbers from 0.1% to 2%. We could televise them every night and people would feel richer tomorrow on their way to Best Buy.

Russian roulette is the only game in town. Increasingly the opportunities to earn a living outside of the "Games of Chance" industry are quickly fading away. A significant portion of our economy is based on people taking a gun loaded with a single bullet, placing it in their mouth and pulling the trigger. The payoff, if you still have a head, can be huge. And even if you are not the one with the gun in your mouth and find yourself in a supporting role providing ammo, cleanup services, or just general managerial and accounting services to the more daring elements, you are highly dependent upon someone, anyone, putting the gun in their mouth. As time goes by most of us will have no choice but to put the barrel in our mouth as options become more limited and the payouts grow steadily smaller. But what options do we have at that point? Possibly turning the weapon on someone else? That is what is happening at the higher level of these games. Those who have been used to putting the gun in their mouth are now aiming it at those who would prefer to sit it out. The Fed and the stock market are pushing the gun across the table towards me, whispering that this may be my last chance. "pick it up" they are saying…..or else.

As Mr. Einstein said," It's all relative!"...lol...For me, I'm not greedy. I just want a small short position to help me enjoy my retirement. So, after big rallies, I sometimes take a small short position to test the waters. When I am proven wrong, I step aside so as not to be run over in the stampede of exuberance. Stay humble.....

I really am getting to the point that i can no longer watch any MSM. I turn on bloomberg as some 'expert' is saying the dow can go much higher - and it's not only because of QE - it's because fundamentals are good - corporate profits are strong.

That is exactly the behavior that the Fed wants. Force the market higher via currency debasement until the idiot, zero value added "experts" go on CNBC to tell everyone that the market is going a lot higher and it's safe to get back in the water only to burn them once again. Same "experts" that were emphasizing caution in 2009 are pounding the table to buy now.

As long as the Fed is running the show, expect this pattern to continue to repeat in the future, destroying the finances of the most vulnerable that can afford it least.